The future of the euro will be determined over the next few dramatic weeks, the Spanish finance minister Luis de Guindos has warned.

"I don't know if we are on the edge of a cliff, but we are in a very, very difficult position," de Guindos said. "The future of the euro is going to play out in the next few weeks in Spain and Italy."

As new data showed Spain's unemployment rate at a record 24.3%, budget minister CristóbalMontoro reported that the country's regional governments, which kept the national budget deficit at 8.9% last year, had balanced their budgets in the first quarter of this year.

But he admitted this was only because central government had brought forward €5bn (£4bn) in payments to the most cash-strapped regions, and admitted that the task of reining in their deficits was far from done.

Montoro also warned other European countries that if Spain was allowed to collapse without paying its debts then that would inflict damage on them too.

"Who holds our external debt?" he asked. "You will understand that those who are most interested in things going well for Spain are the creditors. Or do you think they don't want to get their loans back? I can assure you that they do."

Spain must raise €19bn to save failed lender Bankia and also needsto find money to prop up regional governments, some of whom have been given junk status by ratings agencies and as a result cannot raise their own funding.

But UBS Investment Research said there is now a consensus that the Spanish banking sector in general needs a recapitalization of up to €100bn. That might need further state aid, or help from Europe's bailout fund.

Spain's sovereign bond yields remained high on Friday, with investors demanding 6.5% interest on 10 year loans.

Germany, meanwhile, provided key backing to a European commission proposal to give Spain more time to reduce its deficit to 3% by extending the deadline from next year to 2014.

"Because of unfavorable economic developments, it could be difficult to reach these targets," finance minsitry spokesman Johannes Blankenheim said.

"The Spanish government is tackling with determination the necessary reform measures, and the German government is convinced that this determination will be mirrored on the markets," he added.

"The Spanish State should be able to sustain the recapitalization costs without losing control of its finances," UBS analysts said. "We recognize however that financing this intervention in current market conditions will be difficult."

Sluggish eurozone growth, weighed down by problems in Spain and Italy, looks set to bring greater unemployment.

"This 11% level is going to continue edging up in the coming months and probably until the end of the year," Francois Cabau, an economist at Barclays Capital, told Reuters. "The economic activity situation tells you the story of the labour market. There's been basically no economic growth since the fourth quarter of last year."